REFERENCE DOCUMENT 2008

Transcription

1 REFERENCE DOCUMENT 2008

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3 2008 REFERENCE DOCUMENT This document is a free translation of the French language reference document that received from the Autorité des marchés financiers (the AMF ) visa number R on 21 April It has not been approved by the AMF. This translation has been prepared solely for the information and convenience of shareholders of Arkema S.A. No assurances are given as to the accuracy or completeness of this translation, and ARKEMA assumes no responsibility with respect to this translation or any misstatement or omission that may be contained therein. In the event of any ambiguity or discrepancy between this translation and the French reference document, the French reference document shall prevail. In accordance with its General Regulation, notably article , the French language version of this document was registered with the Autorité des marchés financiers on 21 April 2009 with visa number R This document may only be used in connection with a financial operation if it is completed by a prospectus which has received the visa of the Autorité des marchés financiers. This document has been prepared by the issuer under the responsibility of its signatories. The registration, after examination of the relevance and internal consistency of the information regarding the Company s situation, does not imply validation of the accounting and financial information presented. Pursuant to article 28 of European Commission (EC) rule n 809/2004, this reference document incorporates by reference the following information: the consolidated financial statements for the year ended 31 December 2007 included in chapter 20 of the reference document granted visa n R by the Autorité des marchés financiers on 17 April 2008, as well as the statutory auditors reports related thereto; the consolidated financial statements for the year ended 31 December 2006 included in chapter 20 of the reference document granted visa n R by the Autorité des marchés financiers on 21 May 2007, as well as the statutory auditors reports related thereto; the comparative analysis between the 2007 consolidated financial statements and the 2006 consolidated financial statements included in chapter 9 of the reference document granted visa n R by the Autorité des marché s financiers on 17 April Reference Document 1

4 contents 1 2 PERSONS RESPONSIBLE FOR THE REFERENCE DOCUMENT AND FOR FINANCIAL INFORMATION PERSON RESPONSIBLE FOR THE REFERENCE DOCUMENT DECLARATION BY THE PERSON RESPONSIBLE FOR THE REFERENCE DOCUMENT PERSON RESPONSIBLE FOR FINANCIAL INFORMATION 6 PERSONS RESPONSIBLE FOR AUDITING THE FINANCIAL STATEMENTS OF ARKEMA S.A CASH AND SHAREHOLDERS EQUITY DESCRIPTION OF GROUP CASH FLOW BORROWING TERMS AND CONDITIONS AND FINANCING STRUCTURE OF THE GROUP OFF-BALANCE SHEET COMMITMENTS INFORMATION ON RESTRICTIONS ON THE USE OF CAPITAL THAT HAS SIGNIFICANTLY INFLUENCED OR MAY SIGNIFICANTLY INFLUENCE, DIRECTLY OR INDIRECTLY, THE GROUP S BUSINESS ANTICIPATED SOURCES OF FINANCING FOR FUTURE INVESTMENTS DIVIDEND POLICY 73 3 SELECTED FINANCIAL INFORMATION 9 11 RESEARCH AND DEVELOPMENT RESEARCH AND DEVELOPMENT INDUSTRIAL PROPERTY RIGHTS 78 4 BUSINESS OVERVIEW PRESENTATION OF THE GROUP S INDUSTRY SECTOR INFORMATION ON THE GROUP S TRENDS GENERAL PRESENTATION OF THE GROUP STRATEGY AND COMPETITIVE ADVANTAGES OVERVIEW OF THE GROUP S BUSINESS SEGMENTS 17 INFORMATION ABOUT THE COMPANY INFORMATION ABOUT THE COMPANY CAPITAL EXPENDITURE MAIN TRENDS FACTORS LIKELY TO AFFECT THE GROUP S OUTLOOK 82 OUTLOOK 83 ADMINISTRATIVE BODIES AND GENERAL MANAGEMENT OF THE COMPANY 85 6 RISK FACTORS DEPENDENCE FACTORS MAIN RISKS INSURANCE LITIGATION BOARD OF DIRECTORS MANAGEMENT DECLARATIONS REGARDING ADMINISTRATIVE BODIES CONFLICTS OF INTEREST WITHIN ADMINISTRATIVE BODIES AND MANAGEMENT INFORMATION REGARDING SERVICE CONTRACTS 93 7 SIMPLIFIED LEGAL ORGANIZATION CHART STOCK TRANSACTIONS BY THE DIRECTORS AND MEMBERS OF THE EXECUTIVE COMMITTEE OF ARKEMA S.A PROPERTY, PLANT AND EQUIPMENT PROPERTY, PLANT AND EQUIPMENT ENVIRONMENT AND INDUSTRIAL SAFETY 52 ANALYSIS OF THE GROUP AND THE COMPANY S FINANCIAL CONDITION ANALYSIS OF THE GROUP S FINANCIAL CONDITION AND RESULTS COMMENTS AND ANALYSIS ON CONSOLIDATED FINANCIAL STATEMENTS FOR 2007 AND FINANCIAL INFORMATION ON THE COMPANY S FINANCIAL STATEMENTS, FINANCIAL CONDITION AND RESULTS FEES PAID TO STATUTORY AUDITORS FUNCTIONING OF ADMINISTRATIVE AND MANAGEMENT BODIES FUNCTIONING AND POWERS OF THE BOARD OF DIRECTORS CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER CONDITIONS FOR THE PREPARATION AND ORGANIZATION OF THE WORK OF THE BOARD OF DIRECTORS PRINCIPLES AND RULES FOR DETERMINING COMPENSATION AND ALL OTHER BENEFITS PAID TO OFFICERS OF THE COMPANY LIMITATIONS ON THE POWERS OF CHIEF EXECUTIVE OFFICER VICE-EXECUTIVE OFFICER INTERNAL CONTROL PROCEDURES COMPLIANCE WITH CORPORATE GOVERNANCE SYSTEM Reference Document

5 16 COMPENSATION AND BENEFITS COMPENSATION (INCLUDING CONDITIONAL OR DEFERRED COMPENSATION) AND BENEFITS IN KIND AWARDED BY THE COMPANY AND ITS SUBSIDIARIES INFORMATION PROVIDED BY THIRD PARTIES, STATEMENTS BY EXPERTS AND DECLARATIONS OF INTEREST TOTAL AMOUNTS COVERED BY PROVISIONS OR RECORDED ELSEWHERE BY THE COMPANY AND ITS SUBSIDIARIES FOR PURPOSES OF PAYING PENSION, RETIREMENT OR OTHER BENEFITS DOCUMENTS AVAILABLE TO THE PUBLIC PLACE WHERE DOCUMENTS AND INFORMATION RELATING TO THE COMPANY MAY BE CONSULTED EMPLOYEES HUMAN RESOURCES POLICY SAFETY IN ACTION ANNUAL DOCUMENT PREPARED IN ACCORDANCE WITH ARTICLES AND OF THE GENERAL REGULATIONS OF THE AUTORITÉ DES MARCHÉS FINANCIERS DIALOGUE WITH SOCIAL PARTNERS AND GROUP S DEVELOPMENT WELFARE - RETIREMENT INFORMATION ON SHARES HELD BY THE COMPANY COLLECTIVE COMPENSATION, EMPLOYEE SAVINGS SCHEMES AND EMPLOYEE SHARE OWNERSHIP CORPORATE CITIZENSHIP AND WELFARE INITIATIVES 133 MAIN SHAREHOLDERS SHARE OWNERSHIP AND VOTING RIGHTS DOUBLE VOTING RIGHTS AND LIMITATIONS ON NUMBER OF VOTING RIGHTS TERMINATION OF LIMITATIONS ON NUMBER OF VOTING RIGHTS CONTROL OF THE COMPANY ANNEXES 253 ANNEX 1 ANNEX 2 ANNEX 3 ANNEX 4 STATUTORY AUDITORS REPORT, PREPARED IN ACCORDANCE WITH ARTICLE L OF THE FRENCH COMMERCIAL CODE (CODE DE COMMERCE) 254 STATUTORY AUDITORS REPORT ON REGULATED AGREEMENTS AND COMMITMENTS 256 DRAFT AGENDA OF THE COMBINED GENERAL MEETING ON JUNE DRAFT RESOLUTIONS PROPOSED TO THE COMBINED GENERAL MEETING ON 15 JUNE RELATED PARTY TRANSACTIONS 139 ANNEX 5 DRAFT REPORT FROM THE BOARD OF DIRECTORS TO THE COMBINED GENERAL MEETING OF 15 JUNE FINANCIAL INFORMATION CONCERNING THE ASSETS, FINANCIAL CONDITIONS AND RESULTS OF THE ISSUER REPORT FROM STATUTORY AUDITORS ON CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 149 ANNEX 6 ANNEX 7 ANNEX 8 STATUTORY AUDITORS REPORT ON THE DELEGATIONS GRANTED BY THE GENERAL MEETING TO THE BOARD OF DIRECTORS. 272 ADDITIONAL REPORT FROM THE BOARD OF DIRECTORS ON THE USE IN 2008 OF FINANCIAL DELEGATIONS GRANTED BY THE GENERAL MEETING OF SHAREHOLDERS 275 STATUTORY AUDITORS REPORT ON THE USE IN 2008 OF DELEGATIONS GRANTED BY THE GENERAL MEETING OF SHAREHOLDERS TO THE BOARD OF DIRECTORS REPORT FROM STATUTORY AUDITORS ON COMPANY S FINANCIAL STATEMENTS COMPANY S FINANCIAL STATEMENTS AT 31 DECEMBER NOTES TO THE COMPANY S FINANCIAL STATEMENTS AT 31 DECEMBER GLOSSARY 281 CROSS-REFERENCE TABLE RESULTS OF THE COMPANY IN THE LAST 5 YEARS RECONCILIATION TABLE ADDITIONAL INFORMATION SHARE CAPITAL MEMORANDUM AND ARTICLES OF ASSOCIATION SIGNIFICANT CONTRACTS SIGNIFICANT CONTRACTS GUARANTEES AND INDEMNITIES FROM THE TOTAL GROUP Reference Document 3

6 General comments In this reference document: Arkema S.A. or Company mean the company named Arkema, whose shares are listed on Euronext Paris; Group or ARKEMA mean the group composed of Arkema S.A. and all the subsidiaries and shareholdings held directly or indirectly by Arkema S.A. This reference document contains forward-looking statements about the Group s targets and outlooks, in particular in chapters 12 and 13. Such statements may in certain cases be identified by the use of the future or conditional tense, or by forward-looking words including but not limited to believes, targets, expects, intends, should, aims, estimates, considers, wishes, may, etc. These statements are based on data, assumptions and estimates that the Group considers to be reasonable. They may change or be amended due to uncertainties linked to the economic, financial, competitive, regulatory and climatic environment. In addition, the Group s business activities and its ability to meet its targets may be affected if certain of the risk factors described in chapter 6 of this reference document were to materialize. Furthermore, achievement of the targets implies the success of the strategy presented in section 4.3 of this reference document. The Group does not undertake to meet and does not give any guarantee that it will meet the targets described in this reference document. Forward-looking statements and targets described in this reference document may be affected by risks, either known or unknown, uncertainties and other factors that may lead to the Group s future results, performance and achievements differing significantly from the stated or implied targets. These factors may include changes in economic or trading conditions and regulations, as well as the factors set out in chapter 6 of this reference document. Investors are urged to pay careful attention to the risk factors described in chapter 6 of this reference document. One or more of these risks could have an adverse effect on the Group s activities, condition, financial results or targets. Furthermore, other risks not yet identified or considered as insignificant by the Group could have the same adverse effects. This reference document also contains details of the markets in which the Group operates. This information is derived in particular from research produced by external organizations. Given the very rapid pace of change in the chemicals sector in France and the rest of the world, this information may prove to be erroneous or out of date. Accordingly, trends in the Group s business activities may differ from those set out in this reference document. For the 2008 financial year, the Company has prepared annual financial statements and consolidated financial statements for the period from 1 January to 31 December. These annual financial statements and consolidated financial statements are given in chapter 20 of this reference document. Chapter 9 of this reference document provides a comparative analysis between the 2008 consolidated financial statements and the 2007 consolidated financial statements. A glossary defining the technical terms used in this reference document can be found in chapter 27 of this reference document Reference Document

7 1 Persons responsible for the reference document and for financial information 1.1 Person responsible for the reference document Thierry Le Hénaff, Chairman and Chief Executive Officer, Arkema S.A. 1.2 Declaration by the person responsible for the reference document Having taken all reasonable care to ensure that such is the case, I certify that the information contained in this reference document accurately reflects, to the best of my knowledge, the facts and contains no omission that would be likely to affect its meaning. I certify, to the best of my knowledge, that (i) the accounts have been prepared in accordance with the relevant accounting standards and give a true representation of the assets, financial situation and result of the Company and all consolidated companies, and (ii) the management report, consisting of the sections of this reference document listed in the reconciliation table given in chapter 29, is a true reflection of the evolution of the business, the results and the financial situation of the Company and all consolidated companies as well as a description of the main risks and uncertainties facing them. I have obtained a letter from the statutory auditors confirming that they have completed their work and indicating that they have verified the financial situation and the financial statements included in this reference document and that they have reviewed the document as a whole. This reference document incorporates, for reference purposes, financial statements relating to the financial year ended 31 December 2007 as well as the audit reports for this year by the statutory auditors and financial statements relating to the financial year ended 31 December 2006 as well as the audit reports for this year by the statutory auditors presented respectively in the reference document filed on 17 April 2008 with the Autorité des marchés financiers under n R and in the reference document filed on 21 May 2007 with the Autorité des marchés financiers under n R The audit report by KPMG Audit and Ernst & Young Audit on the consolidated financial statements for the year ended 31 December 2007 includes an observation on accounting changes made for the year. The audit report by KPMG Audit and Ernst & Young Audit on the consolidated financial statements for the year ended 31 December 2006 includes two observations which draw attention respectively to (i) the note to the financial statements which states that the comparative financial statements at 31 December 2005 are combined financial statements and (ii) the note to the financial statements which sets outs the facts which led to the preparation of consolidated financial statements for the year ended 31 December 2006 over 12 months as from 1 January 2006 and not as from 18 May 2006, being the date of the legal and patrimonial constitution of the Group. The consolidated financial statements for the financial year ended 31 December 2008 and the audit report from KPMG Audit and Ernst & Young Audit, statutory auditors, are included in chapter 20 of this reference document. This report does not include any qualification or observation. Thierry Le Hénaff Chairman and Chief Executive Officer 2008 Reference Document 5

8 1 PERSONS RESPONSIBLE FOR THE REFERENCE DOCUMENT AND FOR FINANCIAL INFORMATION Person responsible for financial information 1.3 Person responsible for financial information For any question concerning ARKEMA and its business activities: Frédéric Gauvard Vice-President Investor Relations Arkema S.A. 420, rue d Estienne-d Orves Colombes (France) Phone: +33(0) Reference Document

9 2 Persons responsible for auditing the financial statements of Arkema S.A. Statutory auditors KPMG Audit Department of KPMG S.A. Represented by Bertrand Desbarrières and Jean-Louis Caulier 1, cours Valmy Paris la Défense Cedex Appointed at the annual general meeting of 20 May Current term ends at the conclusion of the annual general meeting to be held in order to approve the financial statements for the year ending 31 December Statutory auditors Ernst & Young Audit Represented by François Carrega and Mrs Isabelle Triquera Lamazière Tour Ernst & Young Faubourg de l Arche 11, allée de l Arche Paris La Défense Cedex First appointed at the annual general meeting of 10 May Current term ends at the conclusion of the annual general meeting to be held in order to approve the financial statements for the year ending 31 December Alternate auditor Jean-Marc Decléty 1, cours Valmy Paris la Défense Cedex Appointed at the annual general meeting of 20 May Current term ends at the conclusion of the annual general meeting to be held in order to approve the financial statements for the year ending 31 December Alternate auditor AUDITEX Faubourg de l Arche 11 allée de l Arche Paris la Défense Cedex First appointed at the annual general meeting of 10 May Current term ends at the conclusion of the annual general meeting to be held in order to approve the financial statements for the year ending 31 December Reference Document 7

10 Reference Document

11 3 Selected financial information (In millions of euros except otherwise mentioned) Sales 5,664 5,675 5,633 EBITDA * EBITDA margin (EBITDA as % of sales) 7.3% 9.1% 8.8% Depreciation and amortization (211) (225) (248) Recurring operating income * Other income and expenses * (92) (72) (53) Operating income * Net income, Group share Dividend per share (in ) ** Shareholders equity 1,906 1,932 2,018 Net debt * Capital employed * 3,024 3,273 3,370 Cash flow from operating activities *** Cash flow from investing activities *** (348) (413) (342) Cash flow from financing activities *** (12) Working capital on sales (in %) * 20.6% 19.3% 18.7% Free cash flow (excluding non-recurring pre spin-off items and impact of acquisitions/divestments (1) *** Capital expenditure (gross) *** * These indicators are defined in chapter 20 of this reference document. ** In 2008, amount of dividend proposed to the annual general meeting of 15 June *** Gross capital expenditure figures and cash flow include, for 2006, the Cerexagri business sold on 1 February (1) Data computed by the Company but which are not extracted from the audited financial statements, detailed in section of this reference document Reference Document 9

12 Reference Document

13 4 Business overview 4.1 Presentation of the Group s industry sector General presentation of the Group Strategy and competitive advantages Competitive advantages Strategy Overview of the Group s business segments Vinyl Products segment Industrial Chemicals segment Performance Products segment Reference Document 11

14 4 BUSINESS OVERVIEW General presentation of the Group All the figures contained in this chapter are provided on a consolidated basis for 2006, 2007 and 2008 (see chapters 9 and 20 of this reference document). 4.1 Presentation of the Group s industry sector The Group is an important player in the global chemical industry. The industry sector to which the Group belongs, commonly called an industry for industries, manufactures a wide range of products for other major industries: construction, packaging, chemicals, automotive, electronics, food manufacturing, pharmaceuticals, etc. The chemical industry is a processing industry that is based on the transformation in one or several stages of raw materials (oil derivatives, gas, minerals, natural products, etc.) into more or less complex chemical products, or into plastics obtained by polymerization. At the two extremes of this wide spectrum, there are, on the one hand, commodities (characterized by few transformation stages, large volumes, and cyclical prices and unit margins), such as olefins and polyolefins, ammonia, methanol and caustic soda, and, on the other hand, sophisticated products like pharmaceuticals and agrochemical derivatives. Between these two extremes are a large number of chemical intermediates, polymers and fine-chemical products. The chemical industry also includes specialty products such as adhesives, paints, inks, varnishes, cosmetics and detergents, developed in response to the need for application products. With estimated worldwide sales of almost 1,800 billion in 2007, the chemical sector is a worldwide industry located in three main geographic regions, namely Europe (about 33% of world production), North America (about 22% of world production) and Asia Pacific (about 39% of world production) (2). Trade in chemicals between these three main production regions is growing, though is still limited at present. The chemical industry is a very fragmented sector, both in terms of products (several tens of thousands), end markets (most industrial sectors are consumers) and industry players (the share of the world market of the top ten companies does not exceed 20%). 4.2 General presentation of the Group The Group operates in this industrial context with a business portfolio focused on three segments: Vinyl Products, Industrial Chemicals, and Performance Products. With sales of 5.6 billion in 2008, the Group is one of the world s leading players in chemicals. The Group, which is present in 40 countries, conducts its businesses on a global scale, using production sites in Europe, North America and Asia (80 production sites excluding those held for closure or sale), as well as geographic subsidiaries and sales offices in a large number of countries. The Group ranks among the leading world or regional producers in its main product lines and conducts its business with respect for health, safety and environment. The Group s commitments towards sustainable development are detailed in the sustainable development report. The Group has six research and development (R&D) centers, of which four are in France, one in the United States and one in Japan. Over 1,200 researchers work within the Group. The Group s R&D expenses amounted to over 2.5% of sales in (2) Source: CEFIC, November 2008, excluding pharmaceuticals Reference Document

15 BUSINESS OVERVIEW General presentation of the Group 4 At 31 December 2008, the Group had 14,983 employees. The Group is currently organized into three business segments (Vinyl Products, Industrial Chemicals, and Performance Products) that further break down into thirteen business units (BUs). Business segments are organized according to the business clusters: the Vinyl Products segment groups together the businesses connected with chlorine chemistry, the Industrial Chemicals segment covers the major chemical intermediates, while the Performance Products segment encompasses the businesses focusing on applications products. The BUs are responsible for their results, cash flow (working capital, capital expenditures ), production management, research, sales, marketing and customer relations. Each BU managing director reports to the vice president of a business segment. The simplified organization chart below shows the BUs operating within each business segment at the date of this reference document. The BUs rely on functional divisions that provide them with continuous support, mainly in the fields of accounting, taxation, legal services, information systems, human resources and communication. These functional divisions are generally responsible, under the authority of the Executive Committee (see section 14.2 of this reference document), for the coherence and control of the Group and, in particular, the coordination of purchasing and logistics, as well as the maintenance of expertise in important areas such as safety, environment, R&D and process engineering. Some of these functional divisions, notably the investor relations, consolidation/ reporting, internal audit and external communication functions, operate for the entire Group Reference Document 13

16 4 BUSINESS OVERVIEW General presentation of the Group The simplified organization chart below describes the Group s functional divisions at the date of this reference document. Exceptions to the general organizational principles of the functional divisions are the raw material purchasing division and the energy purchasing division that report to the head of the Industrial Chemicals segment, as well as the R&D division that reports to the Chairman and Chief Executive Officer. SALES BY BUSINESS SEGMENT (In billions of euros) Vinyl Products % % % Industrial Chemicals % % % Performance Products % % % TOTAL % % % Reference Document

17 BUSINESS OVERVIEW General presentation of the Group 4 SUMMARY OF THE GROUP S MAIN PRODUCTS AND THEIR AREAS OF APPLICATION Vinyl Products Chlorine/Caustic soda PVC Vinyl Compounds Pipes and Profiles (Alphacan) Industrial Chemicals Acrylics Specialty Acrylic Polymers (Coatex) PMMA (Altuglas International) Thiochemicals Fluorochemicals Hydrogen Peroxide Performance Products Technical Polymers Specialty Chemicals (CECA) Functional Additives Chemicals, aluminum, pulp and paper, detergents and soaps, solvents, and raw materials for fluorinated products Construction, pipes, profiles, packaging, cabling, automotive Cabling, bottles, automotive, medical Pipes and profiles Resins, emulsions for adhesives, paints and coatings, superabsorbents Specialty polymers used as rheological modifiers Acrylic glass used in construction, the automotive industry, for advertising boards, in decoration and the manufacture of sanitaryware Chemical intermediates for animal feed, agrochemicals and pharmaceuticals, natural gas odorizers, petrochemicals, polymerization agents Refrigeration, air-conditioning, foams, solvents, intermediates, polymers Hydrogen peroxide (pulp and paper bleaching, textile bleaching, electronics and water treatment), sodium chlorate, hydrazine hydrate and derivatives Technical polymers, including (i) polyamides used in the automotive industry, the aerospace and aeronautics industry, the electronics industry, and in the manufacture of hotmelts, (ii) fluorinated polymers (PVDF) used in construction, chemical engineering, the manufacture of paints and anti-corrosive coatings, and photovoltaic panels, (iii) functional polyolefins used in adhesives, the electrical and electronics industries, and packaging Separation of gases and liquids, adsorption/filtration, specialty surfactants Stabilizers and impact modifiers used in polymer converting, polymerization catalysts for polyethylene, PVC, polystyrene, cross-linking agents, tin-based intermediates INFORMATION BY GEOGRAPHIC REGION * Sales (In billions of euros) Europe % % % North America ** % % % Asia % % % Rest of the World % % % TOTAL % % % * Based on the geographic location of customers. ** USA, Canada, Mexico Reference Document 15

18 4 BUSINESS OVERVIEW Strategy and competitive advantages Capital employed (In billions of euros) Europe % % % North America * % % % Asia % % % Rest of the World % % % TOTAL % % % * USA, Canada, Mexico. The breakdown of employees by geographic region over the last three years is given in section of this reference document. 4.3 Strategy and competitive advantages COMPETITIVE ADVANTAGES In 2008, ARKEMA operated in a tough environment characterized in particular by the sharp decline in demand in many market segments in the 4 th quarter 2008, amplified by massive de-stocking by customers. This unprecedented collapse in demand weighed on volumes. Since the beginning of 2009 and up to the date of this reference document, market conditions have not showed any signs of improvement and visibility has remained low. Furthermore, the business environment in which the Group operates is characterized, at the date of this reference document, by (i) a drop in the cost of energy and some raw materials following the record levels reached in 2008, (ii) a surge in the volatility of markets, (iii) the rise of the Chinese economy despite slower growth than anticipated, (iv) increasing regulations notably in Europe (for instance REACH regulations), and (v) continuing efforts by the Group s main competitors to improve productivity. In 2008 and beginning of 2009, the world chemical industry saw several consolidations within the sector (acquisitions of Lucite by Mitsubishi Rayon Corp., of Ciba by BASF, of Rohm & Haas by Dow ) to which the Group pays close attention. In such an environment, the Group has solid advantages in particular to cope with the current downturn in the global economy: first-class commercial and manufacturing positions: the Group is one of the world s leading players in most of its businesses. This is particularly true of Acrylics, PMMA, Fluorochemicals (gas and polymers), Hydrogen Peroxide, Thiochemicals, specialty polyamides (polyamides 11 & 12), hydrazine hydrate, tin-based PVC stabilizers, impact modifiers and PVC processing aids, tin additives for glass coatings, and organic peroxides. In the chlorochemicals and PVC sectors, the Group is one of the leading European players; high quality manufacturing assets and sound expertise in manufacturing processes: the Group relies on its strong manufacturing positions in Europe, North America and Asia to respond to demand from its customers as effectively as possible. Its technical knowledge of products and manufacturing processes enables the Group to leverage its current production facilities, and gives it a key advantage in the conquest of new markets. In addition, this expertise enables it to complete investment projects on time, on budget, and with great efficiency. The Group also has important R&D skills on which it can rely to launch new innovative products on the market, provide its customers with the technical support they need, or further improve the performance of its manufacturing processes; a solid balance sheet: at 31 December 2008, the Group s net debt was 495 million (representing one time the EBITDA of the year), compared to the shareholders equity (Group share) of 1,996 million (representing a net debt to equity ratio of 25%); high quality teams who have proved their ability to manage complex industrial projects and successfully carry out restructurings needed by the lack of competitiveness that affected some product lines. The Group can count on personnel whose loyalty, professionalism and experience are widely recognized Reference Document

19 BUSINESS OVERVIEW Overview of the Group s business segments STRATEGY The improvement in the Group s results since its operational launch in October 2004 confirms the soundness of its strategy, based on the following three key areas: restore its competitiveness; prepare the future by developing growth relays in its best product lines. In particular, the Group is committed to: speeding up its rate of development in Asia especially in China. In 2007 the Group announced that it would increase its investments in the region to over 50 million per year on average over the next three years, while also significantly increasing its sales in the region, aiming for a 20% share of its overall sales by 2012; increasing to 20% by 2010 the share of sales of new products developed over the last five years for the Performance Products business segment and multiplying by 10 the sales of very high performance polymers to reach 250 million in a five-year time; refocus its portfolio of activities. As part of improving its competitiveness, ARKEMA announced in 2007 an objective to reduce its fixed costs by 500 million, thereby improving its EBITDA by 200 million in 2010 compared to On 15 December 2008 the Group announced a programme to further reduce its costs by 50 million by 2010 representing an EBITDA gain of 30 million. In the future the Group intends to pursue its efforts to improve productivity where needed in order to maintain and boost its competitiveness. Furthermore, in order to prepare the future and develop its growth relays, ARKEMA has announced several targeted growth projects, the purpose of which is to ensure the selective growth of its best facilities in Europe and North America, as well as the expansion of its presence in Asia and an increase in sales of new products. As for the management of its business portfolio, the Group intends to continue to refocus its portfolio of businesses. The Group also intends to maintain a solid financial structure. The Group announced in 2006 that asset divestitures could reach 300 million to 400 million (in terms of annual sales) over a threeyear period, and that it planned to make targeted acquisitions of businesses representing a total amount in terms of annual sales of between 500 million and 800 million (i) to compensate for the reduction in sales resulting from such disposals, (ii) to boost the coherence and integration of its portfolio, and (iii) to reduce its cyclicality. Thus, at the date of this reference document, ARKEMA has already conducted divestments representing a total amount in terms of annual sales of approximately 450 million as well as acquisitions for a total amount in terms of annual sales of approximately 230 million. These broad strategic guidelines are detailed below by business segment. 4.4 Overview of the Group s business segments VINYL PRODUCTS SEGMENT Key figures (In millions of euros) Sales 1,379 1,418 1,443 EBITDA Recurring operating income (25) Capital expenditure (gross value) Reference Document 17

20 4 BUSINESS OVERVIEW Overview of the Group s business segments Breakdown of the segment s sales by BU (2008) (3) General description of the segment s business The Vinyl Products segment is made up of different businesses that are all part of an integrated chemical product chain, from the electrolysis of salt to PVC converting. It covers in particular the manufacture of chlorine and caustic soda, VCM (vinyl chloride monomer), chloromethanes, chlorinated derivatives and PVC, Vinyl Compounds, and the Pipes and Profiles business (Alphacan). The Vinyl Products segment comprises four BUs: Chlorine/Caustic Soda, PVC, Vinyl Compounds, Pipes and Profiles (Alphacan). This sector is faced with volatile market conditions and intense competition. The chlorochemicals sector also faces a number of specific constraints: energy costs, as chlorine and caustic soda are produced by electrolysis that requires approximately 3 MWh of electricity per tonne produced; the cost of ethylene as around one tonne of ethylene is required for every two tonnes of PVC produced; the balance between chlorine and caustic soda that are necessarily produced in equal quantities, but for which demand varies independently; In 2005 the Group launched a consolidation plan for its Chlorochemicals and PVC activities. Completed in 2008, the plan included the closure of poorly performing production facilities and the debottlenecking of some plants. It entailed a 523 job reduction and capital expenditure of nearly 100 million. Subsequently, the Group continued to improve its competitiveness, and announced in November 2008 a restructuring project entailing the closure of the aluminium chloride production unit in Jarrie (France) and the copolymer production unit in Saint-Auban (France), both activities being structurally loss-making. Several additional restructuring projects were also announced in Vinyl Compounds as well as Pipes and Profiles. Thus, all the restructuring plans announced since the beginning of 2008 would result in the loss of over 350 positions. Chlorine/Caustic Soda BU (7% of total Group sales in 2008) The Chlorine/Caustic Soda BU covers chlorine-caustic soda electrolysis (membrane, diaphragm and mercury processes) and production of downstream products (VCM, chloromethanes and chlorinated derivatives). The majority of the chlorine and VCM produced is used internally within the Group, and sales to outside customers represent relatively low volumes. The chloromethanes and chlorinated solvents are largely used as raw materials by the Fluorochemicals BU, the remainder being sold to outside customers. Lastly, virtually all the caustic soda produced is sold on the market. For chlorine, the Group s main competitors are Dow Chemicals, Solvay, Akzo, Bayer and Ineos. The markets in which the Chlorine/ Caustic Soda BU operates are mature. The BU s production units are located in Europe. The main raw materials and energy sources used by the Chlorine/ Caustic Soda BU are: ethylene: the bulk of ethylene supplies is covered by a long-term contract with Total Petrochemicals France. Details of this contract are given in section of this reference document. Ethylene is an essential raw material for this BU and security of supply is a critical factor for the Group; salt: the sites at Fos-sur-Mer and Lavera (France) are supplied with brine by a pipeline connecting them to the brine wells operated by the Group at Vauvert (France). In other cases, salt is bought in from outside suppliers; electricity: electricity supply to the chlorine-producing sites in France (Lavera, Fos-sur-Mer, Jarrie and Saint-Auban) is under contract through to 2010 (a description of the contracts with EDF is given in section of this reference document). In view of the scale of electricity consumption for the chlorine-caustic soda electrolysis processes, the economic conditions relating to access to this energy resource are critical. a mature market in Western Europe. (3) In 2007, the breakdown of the segment s sales by BU was as follows: 22% Chlorine/Caustic Soda, 41% PVC, 17% Vinyl Compounds, and 20% Pipes and Profiles Reference Document

21 BUSINESS OVERVIEW Overview of the Group s business segments 4 In 2008, the Group continued to improve its competitiveness with the announcement of the proposed closure of the aluminium chloride production unit in Jarrie (France). Furthermore, through its stake in a jointly owned chlorochemical company in Qatar (QVC), the Group will review development opportunities that may arise in the Middle East. PVC BU (10% of total Group sales in 2008) The PVC BU covers production of general purpose and specialty PVC. A proportion of PVC volumes is used internally by Alphacan and the Vinyl Compounds BU, with remaining volumes sold on the market. The markets supplied by the PVC BU in Europe are mature markets. In 2008, the Group continued to improve its competitiveness with the announcement of the proposed closure of the copolymer production unit in Saint-Auban (France). Based on the Group s production capacities, all of which are located in Europe, the Group ranks number three for PVC production in Europe (4), where its main competitors are Ineos, Solvin, Tessenderlo, Vinnolit and Shin Etsu. Vinyl Compounds BU (4% of total Group sales in 2008) The Vinyl Compounds BU manufactures and markets a wide range of products ready for use that are obtained by mixing PVC and additives (notably plasticizers, stabilizers and colorants). This BU uses a large number of raw materials, some of which partly come from the Group s manufacturing units (PVC, plasticizers, stabilizers, and modifiers). The Group considers that it is one of the leading players in the European compounds market, which represents approximately 25% of PVC volumes. Its main competitors are Ineos, Solvay and LVM. These three companies, together with ARKEMA, account for some 65% of European production capacity (5) (estimated capacity of 1.6 million tonnes). This BU s main production sites are located in Europe (France, Germany, Belgium, Spain and Italy). It also has one production site in Vietnam, and has had a production plant in China since In order to maintain competitiveness in this sector, the Group has sought to concentrate on its best performing sites. Since 2004 the Group has indeed taken major steps to improve the competitiveness of its Vinyl Compounds activity. These steps included the restructuring of the Vinyl Compounds activities at the Saint-Fons site (France) in 2005, the rationalisation in 2007 and 2008 of Resilia s Novellara and Samarate sites (Italy), the closure of Dorlyl (France) in 2008, and the announcement in early 2009 of the divestment of the its business at the Vanzaghello industrial site (Italy) to Industrie Generali Spa representing annual sales of approximately 22 million. The Vinyl Compounds BU is now seeking to move into higher valueadded application fields (specialty PVCs and in particular PVC slush for automotive applications such as dashboards), and more profitable markets. Thus the Group inaugurated in October 2007 a new specialty compounds production line for the automotive market at Changshu (China). The capacity of this first production line, which came on stream in July 2007, was doubled in the first half of Pipes and Profiles BU (Alphacan) (5% of total Group sales in 2008) The Pipes and Profiles BU consists of the Alphacan group of subsidiaries. Alphacan carries out its businesses downstream from the production of PVC. It manufactures two main types of products, pipes and profiles, which are principally obtained by the extrusion of PVC compounds, which Alphacan manufactures itself. The main raw materials used by Alphacan are PVC and various additives such as mineral fillers, stabilizers and colorants. Alphacan obtains most of its PVC supply from the Group s production units, but also buys in some PVC from other producers. Alphacan has production sites in five European countries. Alphacan s main end-markets are construction and public works, where its products are used for drinking water conveyance, waste water drainage, sewage, irrigation, windows, etc. The growth of these markets is therefore closely linked to that of these economic sectors. Alphacan operates in two markets with different trends: pipes and profiles. Pipes, which are marketed in France, Germany, Benelux countries and Spain, represent a mature market and a highly competitive industry with very high levels of standardization. Alphacan estimates it ranks sixth in the European market for PVC pipes. Its main competitors are Wavin, Pipelife, Uponor, Tessenderlo and Uralita. In pipes, Alphacan s strategy is based on maintaining its positions and improving its competitiveness. In profiles, Alphacan sells its products mainly in Southern Europe. These markets have attractive growth prospects thanks to the potential for PVC profiles to replace other materials. The main players in this market are Profine, Deceuninck, Veka, Rehau and Aluplast. In this sector, Alphacan continues to expand, with a particular focus on higher value-added products. Since 2007, Alphacan has announced a number of restructuring plans concerning the following sites: Chantonnay (France), which belongs to the subsidiary Soveplast (reorganisation announced in January 2007); (4) Source: Parpinelli Tecnon ATEC (5) Source: ARKEMA internal estimate Reference Document 19

22 4 BUSINESS OVERVIEW Overview of the Group s business segments Gaillac and Alphacan head office in La Celle Saint-Cloud (France) (reorganisations announced in June 2008); Hasparren (France) (reorganisation announced in December 2008); Miranda (Spain) and Ehringshausen (Germany). These restructuring operations, aimed at restoring the competitiveness of the BU, entail (i) the cessation of production of low-margin products, (ii) the development of high value-added activities through growth investments and the implementation of a more targeted marketing policy, and (iii) the optimisation of support functions. These restructuring operations announced in 2008 should result in a reduction of 181 positions. Finally, in January 2009 Alphacan sold its Sanitary Heating Pipes business (Nevers site - France) to the French company COMAP, a subsidiary of the Dutch group Aalberts Industrie NV. Sales in 2008 for this business were of the order of 25 million INDUSTRIAL CHEMICALS SEGMENT Key figures (In millions of euros) Sales 2,494 2,529 2,582 EBITDA Recurring operating income Capital expenditure (gross value) Breakdown of the segment s sales by BU (2008) (6) General description of the segment s business The Industrial Chemicals segment comprises six BUs: Acrylics, Specialty Acrylic Polymers (Coatex), PMMA (Altuglas International), Thiochemicals, Fluorochemicals, and Hydrogen Peroxide. These businesses have a number of common characteristics, among which are the use of complex manufacturing processes and the existence of world markets that offer the prospects of strong growth, particularly in the Asian region. In the various product chains of the Industrial Chemicals segment, the Group ranks among the world s leading companies and has production units in Europe and North America for most of its main products (acrylic acid, methyl methacrylate (MMA), PMMA, fluorochemicals, hydrogen peroxide and sulfur derivatives, etc.). The Group is also present in Asia and already has its own industrial base there for the production of fluorochemicals, hydrogen peroxide and PMMA. This segment benefits from a certain degree of integration with the Group s other businesses. For example, chlorinated solvents and chloromethanes are used as raw materials for fluorochemicals (some of which are used in the manufacture of technical polymers), hydrogen peroxide is partly used in the production of organic peroxides, and certain acrylic and thiochemical derivatives are used in the manufacture of plastic additives. The Industrial Chemicals segment plans to continue to expand its business, and to strengthen its global positions by building on new facilities in Asia, carrying out targeted debottleneckings in Europe (6) In 2007, the breakdown of the segment s sales by BU excluding the Specialty Acrylic Polymers BU (Coatex) was as follows: 26% Acrylics, 29% PMMA, 19% Thiochemicals, 16% Fluorochemicals, and 10% Hydrogen Peroxide Reference Document

23 BUSINESS OVERVIEW Overview of the Group s business segments 4 and North America, creating cooperation projects with its major partners, and boosting its downstream integration. Acrylics BU (11% of total Group sales in 2008) The Acrylics BU s main products are acrylic acid and its derivatives, oxo-alcohols, phthalic anhydride and dioctylphthalate. The main downstream markets for the Acrylics BU are coatings (paints, UV curing, etc.), superabsorbents, plastic additives, water treatment, paper and adhesives. The Group is ranked number five worldwide for acrylic acid (7). Its main competitors for this product are BASF, Dow Chemicals, Nippon Shokubai, and Rohm & Haas. The world growth in this market over the coming years is estimated at approximately 4% per year on average (8). Following a tense period culminating in 2005, the startup of new production plants in Asia has led to pressure on acrylics margins. The main raw materials used by the Acrylics BU are propylene and orthoxylene, the supply of which is covered by medium- and long-term contracts. The Group s main supplier in France is Total Petrochemicals France, under terms set out in section of this reference document. Propylene is an essential raw material for the Acrylics BU. Its security of supply is a critical factor for the Group. The Acrylics BU plans to build on its strong marketing positions and technical expertise to strengthen and expand its businesses globally, in particular in Asia, where growth is strongest. However, taking into account currently deteriorated market conditions, the Group indicated that its investment project in Asia would be postponed. In 2007 the Acrylics BU initiated a performance plan at its Carling- Saint-Avold (France) site to improve its competitiveness by reducing its structural costs (reduction in maintenance costs and rationalization of procurement of goods and services) and reorganizing the production of acrylic and methacrylic derivatives and specialty products. This program has resulted in a reduction of 58 positions. On this site, ARKEMA also sold on 1 April 2008 to Sumitomo Seika its business in superabsorbent polymers, which provides the Carling site, still operated by ARKEMA, with a genuine opportunity to develop this activity in which Sumitomo Seika ranks among the world s leading companies. This divestment also includes a longterm contract for the supply of acrylic acid produced on the Carling site which contributed to the consolidation of ARKEMA s acrylics business by bolstering a direct downstream activity. ARKEMA also announced in September 2008 the creation of a new 50,000 tonne 2-ethyl hexyl acrylate production unit on the Carling- Saint-Avold site (France) operating a new innovative process developed by ARKEMA s R&D and Process departments. Due to come on stream in the autumn of 2009, the new unit will help accommodate the growth in the 2-ethyl hexyl acrylate world market, one of the main applications being the manufacture of pressure sensitive adhesives. Finally, the acquisition of the company Coatex (Specialty Acrylic Polymers BU) in October 2007 has helped strengthen the downstream integration of the acrylics chain in accordance with the Group s acquisition strategy. Specialty Acrylic Polymers BU (Coatex) (3% of total Group sales in 2008) The Specialty Acrylic Polymers BU manufactures specialty polymers, mainly acrylic based, used as dispersants and thickeners. The main end-markets for these high-growth specialty chemical activities include paper, paint, water treatment, cosmetics, textile and concrete. In the latter sector, ARKEMA carried out in June 2008, through its subsidiary Coatex, the acquisition of LyondellBasell s E thacryl business. With annual sales of the order of 4 million, this activity will help Coatex consolidate its know-how in the concrete and plaster additives markets, and speed up its growth in this area. With its headquarters and largest site in Genay (France), near Lyon, Coatex also operates industrial and storage facilities in Europe, the United States and Asia. Coatex s business offers strong synergies with ARKEMA s in raw material, process and R&D terms, and represents the natural downstream activities of ARKEMA s acrylic monomer production sites in Bayport (United States) and Carling (France). Additionally, ARKEMA and Omya, Coatex s main customer, have developed strategic cooperation, in particular in technical and commercial fields. PMMA BU (Altuglas International) (12% of total Group sales in 2008) The PMMA BU operates globally. Its main brand names, Plexiglas in America only and Altuglas in the rest of the world, enjoy a strong reputation. This BU is an integrated production chain, from methyl methacrylate to the production of PMMA. It operates on three continents with plants in the United States, Mexico, Europe and South Korea. The main products include various grades of PMMA resin as well as cast and extruded sheet. Altuglas International sells its products into a wide range of markets, of which the most important are construction, automotive, sanitary ware, commercial display signs, electronics and household goods. The Group is the leading producer of PMMA in the world (9). Its main competitors are Evonik, Mitsubishi Rayon Corp. and Sumitomo. (7) Source : SRI-CEH Acrylic Acid & esters, July (8) Source: ARKEMA internal estimate. (9) Source: Parpinelli Tecnon ATEC Reference Document 21